Correlation Between Metso Outotec and Talanx AG

Can any of the company-specific risk be diversified away by investing in both Metso Outotec and Talanx AG at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Metso Outotec and Talanx AG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Metso Outotec Oyj and Talanx AG, you can compare the effects of market volatilities on Metso Outotec and Talanx AG and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Metso Outotec with a short position of Talanx AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metso Outotec and Talanx AG.

Diversification Opportunities for Metso Outotec and Talanx AG

-0.23

Correlation Coefficient

Metso Outotec  Talanx AG

Very good diversification

The 3 months correlation between Metso and Talanx is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Metso Outotec Oyj and Talanx AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talanx AG and Metso Outotec is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Metso Outotec Oyj are associated (or correlated) with Talanx AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talanx AG has no effect on the direction of Metso Outotec i.e., Metso Outotec and Talanx AG go up and down completely randomly.

Pair Corralation between Metso Outotec and Talanx AG

Assuming the 90 days horizon Metso Outotec Oyj is expected to under-perform the Talanx AG. In addition to that, Metso Outotec is 1.25 times more volatile than Talanx AG. It trades about -0.03 of its total potential returns per unit of risk. Talanx AG is currently generating about 0.16 per unit of volatility. If you would invest  7,160  in Talanx AG on October 5, 2024 and sell it today you would earn a total of  965.00  from holding Talanx AG or generate 13.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Metso Outotec Oyj  vs.  Talanx AG

Metso Outotec Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metso Outotec Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Metso Outotec is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Talanx AG

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Talanx AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Talanx AG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metso Outotec and Talanx AG

The main advantage of trading using opposite Metso Outotec and Talanx AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metso Outotec position performs unexpectedly, Talanx AG can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Talanx AG will offset losses from the drop in Talanx AG's long position.

The idea behind Metso Outotec Oyj and Talanx AG pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.